National Union Fire Ins. v. Crocker
| Decision Date | 15 February 2008 |
| Docket Number | No. 06-0868.,06-0868. |
| Citation | 246 S.W.3d 603 |
| Parties | NATIONAL UNION FIRE INSURANCE COMPANY of Pittsburgh, PA, Appellant, v. Beatrice CROCKER, Appellee. |
| Court | Texas Supreme Court |
Thomas C. Wright, Harrison H. Yoss, John Sepehri, Michael A. Choyke, for Appellant.
Thomas Joseph O'Meara, Jamie Renee Critchfield Peterson, William C. Schmidt, for Appellee.
This insurance-coverage case comes to us on certified questions from the United States Court of Appeals for the Fifth Circuit.1 The principal issue is whether an insurer has a duty to notify an additional insured2 of available liability coverage. On the facts presented, we conclude that Texas law imposes no such extra-contractual duty. We further hold that an insurer's actual knowledge that an additional insured has been served with process does not establish as a matter of law that the insurer has not been prejudiced by the additional insured's failure to notify the insurer of the receipt of process.
Beatrice Crocker was a resident of Redwood Springs Nursing Home, which is owned by Emeritus Corporation. She filed suit in state court against Emeritus and Richard Morris, a nursing home employee, seeking compensation for injuries suffered when she was hit by a door swung open by Morris.3 Crocker's claims against Emeritus were covered by a commercial general liability policy issued by National Union Fire Insurance Company of Pittsburgh, PA. Because Morris was acting within the course and scope of his employment when the accident occurred, he qualified as an additional insured under the policy.4 National Union defended Emeritus, the named insured, but did not defend Morris even though the claims against him were covered by the policy and National Union knew he was a named defendant that had been served. As the Fifth Circuit points out, "Morris was not aware of the terms and conditions of the Emeritus policy [and] did not know that he was an additional insured under the policy."5 National Union did not inform Morris that he was an insured, nor did it offer to defend him. Morris was served, but he "did not forward the suit papers to National Union or otherwise inform it that he had been sued, and did not request a defense from either National Union or Emeritus."6 Morris never answered the suit and did not appear at trial. National Union attempted to contact Morris about Crocker's claims, both before and after Crocker filed her lawsuit, but to no avail—the certified mail was returned, and the repeated phone messages were not returned. Morris spoke privately with Crocker's attorney at a deposition, but Morris refused to speak in private with Emeritus's counsel.
After the evidence was presented, the state trial court granted Crocker's motion to sever the claims against Morris. The claims against Emeritus were submitted to the jury, which returned a take-nothing verdict, finding that Emeritus, acting "by and through its agents acting within the course and scope of their employment," including Morris, was not negligent. A few days later, however, the trial court entered a $1 million default judgment against Morris on the severed claims.7
Crocker sued National Union to collect the judgment, asserting she was a third-party beneficiary to the policy. National Union removed the case to federal court, and both parties moved for summary judgment. National Union argued that Morris never triggered the duty to defend because he failed to forward the suit papers or otherwise notify National Union that he had been sued and he did not ask National Union to provide a defense. The policy provides:
Before coverage will apply, you must notify us as soon as possible of an occurrence or offense which may result in a claim or suit against you.
Notice should include:
• How, when and where the occurrence or offense took place;
• Names and addresses of any witnesses and injured people;
• Nature and location of any injury or damage.
Before coverage will apply, you must notify us in writing of any claim or suit against you as soon as possible. You must:
• immediately record the specifics of the claim and the date you received it;
• send us copies of all demands, suit papers or other legal documents you receive, as soon as possible.
National Union contends that, because Morris failed to comply with the notice provisions, he did not invoke coverage or the right to a defense under the policy, meaning that Crocker, who now purports to stand in Morris's shoes, cannot collect under the policy either.
Crocker responds that even though Morris did not comply with the notice-of-suit provision, National Union had actual knowledge of Crocker's suit, and hence was not prejudiced by Morris's failure to forward the suit papers. Crocker contends that National Union's actual knowledge of the suit coupled with its failure to notify Morris that he was covered amounted to a breach of its duty to defend Morris, thus making National Union liable to Crocker for the full $1 million default judgment.
The federal district court agreed with Crocker, concluding that Texas law required National Union to show prejudice in order to establish a notice-based policy defense. The court also found that National Union breached a duty to defend Morris by failing to notify Morris that it would defend him. Therefore, the court granted summary judgment in favor of Crocker and awarded her $1 million. National Union appealed to the Fifth Circuit, which certified three questions to us.
The Fifth Circuit first asks:
Where an additional insured does not and cannot be presumed to know of coverage under an insurer's liability policy, does an insurer that has knowledge that a suit implicating policy coverage has been filed against its additional insured have a duty to inform the additional insured of the available coverage?8
We answer the question, no.9
Insurance policies are written contracts, and, as with other contracts, we interpret and enforce them according to settled rules of construction.10 Most importantly, we must give the policy's words their plain meaning,11 without inserting additional provisions into the contract.12
Our 1978 decision in Weaver v. Hartford Accident & Indemnity Co. governs today's case.13 In Weaver, we held that an insurer was not liable to an additional insured's judgment creditor when the additional insured failed to notify the insurer that he had been served with process, even though the insurer knew about the suit, and the additional insured knew nothing about the policy.14 Weaver sued Hartford, an insurer, to recover under an automobile liability policy on the basis of a default judgment obtained against an additional insured. Hartford had issued the policy naming J.C. Thomas Enterprises as the insured. The policy defined "insured" to include any person using a vehicle owned by Thomas Enterprises with its permission. One of Thomas Enterprises's employees, while driving a company vehicle, had an accident with Weaver.
Weaver sued the employee and later added Thomas Enterprises as a co-defendant. Thomas Enterprises notified its insurer of the suit, and an answer was filed on its behalf, denying that the employee had permission to use the vehicle. During the insurer's investigation of the accident, the employee told the insurer that he did not have permission to use the vehicle at the time of the accident. He also acknowledged that he never notified Hartford of the lawsuit, filed an answer, or had an answer filed on his behalf. Weaver nonsuited Thomas Enterprises and was granted a default judgment against the employee.15
After winning the judgment, Weaver sued Hartford to collect under the policy as a third-party beneficiary, alleging that Thomas Enterprises gave its employee permission to drive the vehicle. Despite the employee's previous statement that he did not have permission to drive the vehicle, the jury found that he was an additional insured. The policy provided that an insured's failure to forward suit papers to Hartford relieved it of any liability to an injured third party, but the trial court entered judgment in favor of Weaver.16
On appeal, we held that the liability insurer had no duty to volunteer to defend the additional insured.17 We noted that one purpose served by the insured's obligation to forward suit papers "is to enable the insurer to control the litigation and interpose a defense."18 We emphasized, however, that "a more basic purpose is to advise the insurer that an insured has been served with process and that the insurer is expected to timely file an answer."19 Under Weaver, an insurer's knowledge that a suit has been filed against an additional insured does not satisfy this "more basic purpose" or require the insurer to "gratuitously subject[ ] itself to liability."20 The insured's ignorance of any rights or obligations under the policy did not affect our analysis in that case. Put simply, there is no duty to provide a defense absent a request for coverage.
The similarities between this case and Weaver abound. First, both Morris and the employee in Weaver were additional insureds under the liability policies at issue.21 Second, the injured party in each case sued both the named insured and the additional insured but did not recover anything from the named insured.22 Third, both additional insureds failed to forward suit papers to the insurers, so neither was defended by the insurer.23 Fourth, both additional insureds lacked knowledge of the existence of the employers' liability policies and the notice-of-suit provisions.24 Fifth, both insurers argued that they had no duty to inform the additional insured of the possibility of coverage.25 While in Weaver we did not directly address the additional insured's ignorance of the policy, we nevertheless held that the insurer had no duty...
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